Consumer prices spiked again in June, extending the highest rate of inflation in 13 years and emerging as a midterm campaign issue over President Biden’s big-spending programs.
The Labor Department reported Tuesday that consumer prices rose 0.9% in June from May and 5.4% over the past year — the highest jump in 12-month inflation since August 2008. Core inflation, excluding fuel and food prices, rose 4.5% in the past year, the biggest increase since September 1991.
The persistent rise in prices could stall the trillion-dollar infrastructure initiatives of Mr. Biden, who has been promising that the spike in inflation is temporary. House Republicans showed Tuesday that the consumer crunch is becoming a campaign issue in the 2022 elections.
“Families are paying more for everything they need to get by and it’s a direct consequence of House Democrats’ decision to blow trillions of taxpayer dollars on pork, pet projects and paying people not to work,” said Calvin Moore, spokesman for the Congressional Leadership Fund, a super PAC supporting House Republicans. “Democrats took over Washington and all the American people got for it is increasing costs of living, increasing unemployment rates, and increasing crime rates.”
Stocks were flat in opening trading Tuesday on the hotter-than-expected inflationary news, which tempered a strong start to the second-quarter earnings season. Investors are worried that rising inflation could prompt the Federal Reserve to back off its low-interest rate policies earlier than expected, which could threaten the recovery.
Fed officials have repeatedly said, though, that they regard the surge in inflation as a temporary response to supply shortages and other short-term disruptions as the economy quickly bounces back.
Prices for used cars and trucks soared 10.5% from May — the largest such monthly increase since record-keeping began in January 1953. That spike accounted for about one-third of the monthly increase for the third straight month.
The cost of airfares and clothing also rose sharply in June.
The jump in prices stems in many cases from a shortage of components and goods throughout the economy, from semiconductors to used cars, as well as surging demand from consumers who are increasingly traveling, shopping and eating out — and too few workers to serve them. Wages have increased sharply as a result, along with restaurant meals, airline fares and hotel rates.
Hotel room prices soared 7% in June. And the cost of new cars leapt 2%, the biggest monthly increase since May 1981. Auto prices have soared because the shortage of semiconductors has forced car makers to scale back production.
Restaurant prices rose 0.7% in June and 4.2% in the past year, a sign that many companies are raising prices to offset higher labor costs.
So far, investors have largely accepted the Fed’s belief that higher inflation will be short-lived, with bond yields signaling that inflation concerns on Wall Street are fading. Bond investors now expect inflation to average 2.4% over the next five years, down from 2.7% in mid-May.
Americans’ longer-term views on inflation have also leveled off. A survey by the Federal Reserve Bank of New York, released Monday, found that consumers expect inflation to remain near 5% a year from now. But they expect inflation to be 3.5% three years from now, down slightly from last month. Consumers typically overestimate future inflation.
The public’s expectations of inflation are important, because they can be self-fulfilling. If consumers foresee higher prices, they are likely to demand higher pay, and businesses will try to charge more to offset their higher costs.
The Fed is aiming for inflation to exceed its target of 2% for some time to make up for the fact that inflation fell below that level for most of the past decade. The Fed wants inflation to average 2% over time to prevent Americans’ inflation expectations from falling too low.
• This article is based in part on wire service reports.